Skip to main content

tv   Mad Money  CNBC  August 6, 2012 11:00pm-12:00am EDT

11:00 pm
[ whirring and beeping ] it's the at&t network -- doing more with data to help business do more for customers. ♪ e i'm krimm cramer, and welcome to my world. >> you need to get in the game. >> firms are going to go out of business and they are nuts. they are nuts! they know nothing. i always like to say there's a bull market somewhere. "mad money," you can't afford to miss it. hey, i'm cramer. welcome to "mad money." welcome to cramerica. some want to make friends, i want to save you money. my job is to entertain you as well as educate you so call me, 1-800-cnbc. in the face of crushing declines and uproarious rallies and even sometimes just plain jane garden variety days in this market, there is a "mad money" toolbox to help you through and to help
11:01 pm
you become a better and wealthier investor. tonight i'm cracking it open, so listen up. if you're going to manage your own money, have you to recognize the value of maybe one of the most important issues out there, the value of humility. so please, repeat after me. sometimes i am going to be wrong. come on, say it. sometimes i'm going to be surprised. and one more, sometimes my stock picks just won't work out. look. i of all people understand that humility doesn't come naturally to everyone, but staying humble, it's important. why? because other than greed nothing has cost more people more money than arrogance. if you own stocks, you have to accept the fact that you're going to be wrong perhaps even often. as the past three years have taught you, painfully -- >> the house of pain. >> -- our portfolio will get hits with things you never saw coming, things you never imagined, things you never thought were possible. or to put it another way, the one thing that you can be sure of when you're putti portfolio together, that at some point
11:02 pm
something is going to go wrong, and it will hit you totally out of left field. or even worse, something bad will happen that could easily have been anticipated, and unless you took the appropriate precautions, you'll end up being run over by a train that you actually saw coming. >> all aboard. >> think about how -- how often have we been clobbered which the mess in europe? every time things look less horrible and every time we think maybe, maybe the worst has past, there's some hideous headline out of spain or italy. it comes back with the vengeance and the s&p 500 gets bashed down by a torrent of selling. that's why it's so important to prepare yourself and your stocks for the next catastrophe around the corner, expected or unexpected so can you make money in any market or at least lose less and not just when things are going smoothly. have you to build this stuff into what i call your world view. you have to assume somewhere
11:03 pm
sometime something will go wrong. i'm not saying you should be a super skeptic perma bear, not at all. over the course of my 31-plus years in this business i've seen the averages climb way too high, watched the market make people too much money to ever be that cynical and close-minded. being negative all the time hasn't been a lucrative strategy and there's no reason for that to change now. there are a handful of professional short tellers out there, hats off to them, they have been able to reliably turn pessimism into profits, that's good. but i don't recommend following in their footsteps. i don't recommend short selling on this program. it's a basic question of arithmetic. when you short a stock or bet against, it right, at best that stock goes to zero and you have 100% gain. double, at worst, it could never stop going higher. and you could lose 200, 300, 1,000%. theoretically you could lose an infinite amount of money if you
11:04 pm
short. you can quadruple and quintupling your original investment. we've seen ten-baggers. ask anybody who bought apple to the generation arl bottom. if they held on to it for the next three years they snagged a 580% return. ♪ hallelujah >> i'm not telling you to be so afraid of what could go wrong that you would pass up on that massive gain. even if you're incredibly bullish, it would be silly to not make sure your portfolio is prepared for the next market-crushing disaster. how many times has europe and given and taken away? we know these things should happen. shouldn't try to stop for them making money but certainly do what we can to protect our investments in advance. how the heck do you do that and get ready for calamity when you don't even know what it's going to look like? how do you expect the unexpected as an investor? one word. one magic word.
11:05 pm
diversification. look, diversification as boring as it might seem, jim, i can't make thousands of percent with diversification. it's the single most important concept in investing. the key to avoiding enormous losses and make sure can you stay in the game. i talk about diversifying on wednesday. talk about it ad nauseum and why i call it the only free lunch in the original investing gospel. why i push it so hard as essential for protecting your portfolio and getting back to even, the only way of dealing with this foul market. if your profl is properly diversified, you can handle any setback and come back from any financial disaster. you need to make sure your stock eggs aren't in all one stock basket like 2001 and 2002 when people left technology basket. no one sector, no segment of the economy should ever account for more than 20% of your portfolio. own five stocks, one can be a tech stock, one can be a health care stock, one can be a
11:06 pm
financial, one can be an energy and one an industrial and one a food and beverage-maker what. if you're not sure? always err on the side of caution. two stocks tried together, the underlying companies succeed or fail based on the same factors, you're not diversified, oil driller and producer, get those on wednesday, people think they are different. both part of the same district, look, both techs, whether we like it or not. i'm mott doing this to be arbitrary, capricious or make it more difficult to pick stocks. not saigh technicalities. get too concentrated in one area, the moment something happens to one of the big stocks in that area you'll want to throw yourself off the bridge because losses will be enormous. think about it. imagine if you owned too many industrials from the global economy started slowing courtesy of the blowup in europe of and fast-growing emerging markets like china slammed on the brakes with higher interest rate. you got obliterated. how about if you owned too many banks before the financial crisis yet? i know people who did. how about going into the dotcom bust, where the ruination occurred, something that soured
11:07 pm
an entire generation of people on vesting. the goal of diversification spread your money across unrelated sectors so when something happens that makes one go down hard the rest remains unscathed. some can go higher, that's your basic diversification and it is mandatory in cramerica. if you're prepared for anything it's not enough to make sure your stocks don't overlap, you need a portfolio that works in all kinds of markets, so tonight i want to explain and refine what i call the new diversification, how to protect your wealth and ensure you work in something increasingly chaotic, difficult, unforgiving, nauseating, miserable market. we're diversified by sector alone can often not be enough. the new diversification is owning the right kinds of stocks. five different areas you need covered for maximum protection and maximum upside. you need gold, dividend-paying stock with a high yield, growth stock, something speculative, yes, i believe in that, and need something from a healthy geography. cover all five bases, and you'll have a portfolio that can win in any market which is why i'm going to explain what makes all five areas so essential.
11:08 pm
teach you how to analyze stocks by yourself, in each one, so you can fill every position with the best possible names. here's the bottom line. a good investor knows to always expect the unexpected. that means keeping your portfolio diversified with only 20% of your holdings in any one sector and means following the new diversification for maximum protection. remember, gold, high yielder, growth stock, speculative stock, geographically safe stock. stick with cramer, and i'll tell you how to pick the best plays in each of these crucial categories. loretta in arizona to start the questions. loretta? >> caller: hey, jim, thank you so much for taking my call. >> my pleasure. >> caller: my question. regarding your suggestion of not investing more than 20% of your portfolio in any one sector, does this only apply to portfolios with individual stocks, or do you calculate in the stocks which are within your mutual fund as well? >> okay. that's a great question. we don't talk much about mutual funds on this show.
11:09 pm
look, if your mutual fund is diversified in itself, basically you could say, well, why do i even need to pick individual stocks? that's why we have the show called "mad money." a lot of people like to pick individual stocks. i'm not encouraging or discouraging. here's how you do it if you want to. let's keep the mutual funds aside. talking individual stocks. great to have a bedrock mutual fund. i have it in my 401(k) not allowed to own individual stocks, but i don't want you to think you can relate the two. i'm putting that off in a separate quadrant. tom in california, please, tom. >> caller: hi, jim. >> hey, tom. >> caller: here in sunny warren, san diego, america's finest city. i'm a financial advisor and longtime viewer who appreciates what you do to educate and motivate investors. >> thank you. >> caller: i was wondering if you would share what your objective criteria are for investors to use in determination best of breed. thank you. >> well, i've got to tell you, best of breed, start with record of dividends. then i go to how well a company has done consistently in good and bad times, and, yes, for best of breed i actually look at
11:10 pm
the product itself. is the product something i want to use, a bankone i want to go to? is it, to use the dating phrase, a great restauranteur, is it the one that is most hospitable to shareholders? anyway, new diversification, it's what's important. it's what we're preaching tonight. make sure your portfolio is home to some gold, a high-yielder, okay. you need a growth stock. you know what, you need a grow graphically safe area for one of them. i'll tell you how to pick the best ones and how to be comfortable with your portfolio. "mad money" will be right back. >> don't miss a second of "mad money." foll follow @jimcramer on twitter. tweet cramer #madtweets or give us a call at 1-800-743-cnbc. miss something? head to hey, i love your cereal there --
11:11 pm
it's got that sweet honey taste. but no way it's 80 calories, right? no way, right? lady, i just drive the truck. right, there's no way right, right? have a nice day. [ male announcer ] 80 delicious calories. fiber one. metamucil uses super hardworking psyllium fiber,
11:12 pm
which gels to remove unsexy waste and reduce cholesterol. taking psyllium fiber won't make you a model, but you should feel a little more super. metamucil. down with cholesterol. something you're born with. and inspires the things you choose to do. you do what you do... because it matters. at hp we don't just believe in the power of technology. we believe in the power of people when technology works for you. to dream. to create. to work. if you're going to do something. make it matter.
11:13 pm
tonight i'm teaching you a novel way to fill those five slots in your portfolio. the five types of stocks that represent the new diversification, not just by
11:14 pm
sector, but also by style and strategy, so that if executed correctly you'll always own something that works and holds your interest. keeping you in the game, even when it feels so excruciating that you don't want to continue playing. stab and look at your statement, that kind of thing. at the same time making sure you have positions that can go much higher when times are good. what's the most important category? there's no question people. it's yield. you need to own a stock at least one, possibly more, with a big high-yielding dividend, but unlike when which diversity by sector, owning multiple high-yielders can actually be a good thing. i wouldn't own five dividend stocks because you might be extremely vulnerable to competition eye-yielders ever spiked in a big way or the tax rate on dividends went up dramatically and your whole portfolio could get hurt. if you own one stock with a real large yelled and one or two of the other names in your portfolio also happen to sport decent dividends once they get raised, that's not a bad thing. i know dividend-paying stocks may not be what most people consider sexy, but you know what? dividends make you money and to
11:15 pm
me that's the definition of sex appeal. okay. i've got a pretty warp the social life so my perspect you have here might be a little skewed by the fact remains buying high yielders and reis thing those back into the stocks, one of the most greatest and reliable ways to make money out there plain and simple because it allious your investment to compound over time. in other words, over time the money from your past dividends pays dividends, giving what we call you compounding returns. there's a huge misconception about dividends. people think that high-yielders are only about safety or generating income in your retirement. go back to january of 1926, you know about 40% of the return, 40, from the s&p 500, has come from reinvesting dividend. look at the last decade, the percentage is even higher. that's how it is to capital appreciation. of course, their income stream, but that's wall street gibberish for growing your money. dividend stocks aren't merely a place to hide when the market gets rough though they do represent a fabulous safe haven in difficult market, not just for retirees who only care about capital preservation. they do a terrific job on that
11:16 pm
front. investing in eye-yielders is first and foremost one of the best strategies out there for making money, period. one of the safest since dividend stocks have a cushion called yield support that helps them hang in there when everything else is getting annihilated. as the share price falls, yield increases and gets too attractive for most investors to ignore. surviving and thriving, volatile and unfriendly market. tells you all about dividend investing. that's why i like accidental high yielders. i even call them ahys whenever you can find them. these are stocks that yield north of 4%, not because of dividend boost, but because the share price has fallen so far so fast causing the yield to skyrocket. time and again we've seen stocks bottom at the crucial 4% level or at least slow down their sempingt happened during the financial crisis that the company could pay the dividend and seen it happen in big industrial stocks hammered by european woes. once the yield hits 4%, as long as dividend is safe, meaning it's backed up by the cash flow, the stocks tend to go down or
11:17 pm
slow. fabulous bargains longer term. i also like the stock in companies that recently have raised their dividend as the dividend hike is one the clearest signals management can send about the strength of the business. remember, a company that raise its dividend is one that has a steady reliable growth. equally important, a company that you can be pretty darn sure won't be cutting the dividend any time soon. even better are the outfits putting in dividend increases for 20, 30, even 40 or more consecutive years, that's part of stability and best of breed. how do you analyze a high-yielding dividend stock? just like when you're learning to drive, think safety first. high yields are aive, but we never reach for yield. a very high yield can often be a signal that the dividend sun sustainable, and, hey, it will have to be cut, which is why we have to put the stocks through a rigorous safety inspection. yeah, i'm throwing the red flag on two high dividends. the dividend of sound, maybe the company can raise it, but it seems endangered, well, you know what you've got to do. sell, sell, sell.
11:18 pm
got to say away. consider the cautionary tales of, wow, two real household names, radioshack and supervalue. in the first half of 2012 stocks had been pounded so hard the yields why in the stratosphere, but there was nothing accidental about the high-yielders, the yields were a huge red flag like the one i almost broke the camera. radioshack and supervalue, stocks down massively, almost hit the floor. the ceo told me a year before he cut it that the dividend was safe. with a what do you look for to tell if the dividend is secure? first, above and beyond everything else we look at the earnings per share. if a company has earnings twice its greatest dividend payout, we know it request sustain dividends even if earnings shrink? if not, you need to go to step two. look at cash flow, especially important when dealing with the companies that have a lot of machinery or other capital investments, cable companies,
11:19 pm
which cause high depreciation, think the high-yielding telecos, verizon and at&t. these amortization costs don't come out of a company's actual cash but do skew the earnings lower which is why the cash flow can often give you a better idea about the health of the dividend. had a lot of callers kay saying, jim, why do you like the at&t? doesn't cover the dividend. it's the cash flow and finally look at the balance sheet to make sure there isn't a lot of debt coming due in the future that can often necessitate a dividend cut if the company doesn't have cash on hand. last but not least, you need to know how to collect, how to actually collect the dividend. forget all the jargon like the record date, on "mad money" we care about only one date with dividends. that's the must-own date. that's the last day you have to buy a stock in order to claim its next dividend payout. the most-own date is always the date before the "x" date and bottom line, if you want to
11:20 pm
embrace diversification, want to be prepared for every kind of market out there, then you absolutely must own at least one high-yielder. dividends protect your stock and also a terrific way to make money. what's not to like. let's go to mary in missouri. mary. >> caller: mr. cramer, i read in the "wall street journal" a very small article on the dividend bubble. i'd like to know what that is and how it might affect my utilities dividend income. >> mary, so glad you asked me in question because for two years now most have been saying people bidding up the dividend stocks, it's a mistake and it's going to crash and what's going to happen is interest rates have gone lower, lower, lower and dividend rates have gotten more attractive. the dividend bubble, i don't think really exists, versus a ten-year, 30 years, i think you're fine. xaes a tettive situation. ron in texas. >> caller: yes, sir. >> what's up. >> caller: so, how do you know when to get out of a stock? let's say you're doing well. it's got a dividend, but --
11:21 pm
>> go ahead. >> caller: you're way up. how do you know? >> how do you know when to get out. one of the things we like to do is stay in touch with fundamentals. don't do buy and hold. we do buy and homework. if you suddenly see a decline in cash flow and the company has like a cfo leaves, that matters, but in general we also don't like to be greedy because bulls make money, bears make money. if you can take out enough money to be able to play with the house's money, that's when you're golden. your portfolio should be able to dividend, not to buy, but dividend and conquer. make sure you have at least one high-yielder. that will help when it comes to diversification. after the break we'll try to make you even more money. >> the best of the best olympic athletes are playing for america in london, cramer never stops playing for you. as always, catch jim at 11:00 p.m. eastern on cnbc and during the olympics find "mad money" at 6:00 p.m. eastern on cnbc world.
11:22 pm
go to "mad money" and use our channel finder to locate it on your local cable system. let the games begin. okay, here's the plan.
11:23 pm
11:24 pm
you have a plan? first we're gonna check our bags for free, thanks to our explorer card. then, the united club. my mother was so wrong about you. next, we get priority boarding on our flight i booked with miles. all because of the card. and me. okay, what's the plan? plan? mm-hmm. we're on vacation. this is no plan. really? [ male announcer ] the united mileageplus explorer card. the mileage card with special perks on united. get it and you're in.
11:25 pm
tonight i'm putting on my negative nancy hat, calling the glass half empty mode and in the immortal words of joey brown some like it hot, nobody is perfect, at least when it comes to investing. why, not because i'm a misanthrope, and i'm not trying to make you hate stocks even more than you already do in the babe of the flash, crash, botched facebook ipo. hey, so many examples of insider trading, it's hard to count. i'm trying to help you cope with your own fallabilities as investors it make sure you're prepared as possible to avoid losses caused by the slings and arrows of an uncertain market. to paraphrase the bard, totally out of context. and while also putting yourself in position to maximize your profit when things are going well. yes, and you know we've got to do that because bulls make money and bears make money. the discipline of diversified portfolio always, always trumps your conviction.
11:26 pm
discipline trumps conviction. used to have it on my pc. by never having all your stock eggs in one basket you'll never have to suffer the agony of watching everything get crushed and the basket gets run over by a truck or an oncoming train. what if you want to put an extra layer of protection against a market that's become increasingly volatile and difficult to fathom in recent years? that's where the new diversification comes in. diversification by strategy. just like being diversified by sector immunizes your portfolio against massive across-the-board losses, being diversified by strategy helps ensure no matter what kind of market you're in you'll likely always own something that's working. i've already said you should reserve one space in your portfolio for a high-yielding dividend stock. now you need a good old-fashioned growth name, especially a secular growth stock. on wall street secular has nothing to do with public versus parochial schools or establishment clause in the first amendment which you know i question.
11:27 pm
no. on wall street when a company has secular growth it means that unlike cyclical smokestack growers earnings are hostage to the growth of the economy. they will keep earning during a slow goup. when you gets your hands on a strong secular grower that stock can lift higher and high, a la jackie wilson going on the new high after new high for as long as the growth lasts. think about apple or whole foods or amazon, some of the major biotech companies, amgene, celgene, back when big pharma was synonymous with growth. remember, when we buy a stock we're paying for a company's expected future earnings per share. that's right. i'm going to repeat that because it's really important. expected future earnings, not past. future. future earnings. it's the basic valuation algebra, the share pace, equals the earnings per share, "e" times what's known as the multiple, "m."
11:28 pm
price-to-earnings multiple. e times m equals p, tells you what investors are willing to for example over for a company's future earnings. blew me away when i got to goldman sachs. we're solving for "m" and the most determinant for the price ingredient that's the most effect on the size valuation, it's the company's growth rate. that's why we pay so much attention. the growth rate is what matters more after the balance sheet and diversification. growth means earnings will get larger and larger in the years ahead. as a general rule of thumb when it comes to high octane secular growers the stock can trade up to a multiple as high as two times, twice the long-term growth rate before it gets too expensive for the vast majority of growth management. money managers with money coming in. company with earnings at 20%, 20% clip, the stock could potentially fly as high as 40 times, 40 multiple and typically
11:29 pm
a growth stoke won't trade down to a multiple one time its growth rate unless there's something wrong with the fundamentals or we're in a nasty market that's soured on growth. that makes the multiples in growth stocks shrink as the larger earnings in the future become much attractive relative to the yields people can get from cash or treasuries or just from plain hard cash because of inflation. by the same token, lower rates make growth stocks more attractive and cause their multiples to expand. even more important, when you want a high-growth stock, you need to be especially sensitive to which direction the earnings estimates are going and whether the estimates are increasing at a faster or slower pace. these stocks can soar to new high after new high but remain cheap, as long as the analysts who cover them are raising the earnings per share estimates quickly enough. when the estimates have momentum, that's right, when you raising number, raise the rates, raise the rates, a stock like apple can double in the course of 12 month and the multiple would be lower than where it started this.
11:30 pm
kind of earnings momentum allows the stock to resist the downward gravitational pull of an ugly economy, sick lar growth, not cyclical. be very, very careful because, remember, when you're playing momentum, you're playing with fire. for the truly high octane growth stocks out there, if the time comes when the estimates have to come down or it looks like the growth is decelerating, splat, like driving a fast car right into a retaining wall or a human, you've got it, the moment one of these companies stumbles the stocks can fall faster than you can imagine. geez, chipotle dropping more than 100 points using its value in a matter of days when in july 2012 it reported a disappointing quarter that suggested the company might be more vulnerable to economic weakness than we previously thought. we thought it was a secular grower. suddenly there was the question did it have weakness? massive gains still, but after a growth name loses its mojo be cautious because the pain can last for years because a stock goes through a painful process
11:31 pm
of george costanzo-like multiple shrinkage. yep, years as momentum-seeking investors grab less and less for progressively slow earnings growth so all the growth managers get shaken out and the multiples shrink to levels where the value-oriented investors become interested. when you see multiple compression, don't hang on for the full ride down. just tell, can you catch it later. the bottom line, to build a portfolio that can work in every market. you need a fast grower, a secular growth stock that needs room to run and when you're dealing with groth it's important to deal up for a company that's accelerating because once a company starts to slow down it can shrink for ages long before it bottoms. logan in texas. >> caller: i just wanted to give you a big university of texas boo-yah. >> i'm loving that boo-yah. what's on your mind? >> caller: i was watching a similar show where i told investors with a peg ratio and
11:32 pm
you could tell how a stock was expensive or not and i was remembering what does it mean when a stock has a negative peg ratio, is it that a cup want to avoid and what are some other indicators you can use to see if a stock has room to grow? >> you always have to worry. this is a complicated concept. i cover it in "getting back to even." cash flow, looks like there's no earnings, then you say, what kind of earnings growth do i have and if there's cash flow growth which is what the cable companies and telecos are, then there's a multiple of that. frankly i'll be very careful. the peg ratio, like it for traditional ratios, not one with earnings. let's go to frank in pennsylvania" first and foremost boo-yah. >> boo-yah right back" what does the term risk on, risk off mean? why is it so commonly used and is this a signal to stay away from a stock? >> all right. i've been at it more than 30 years. this risk on, risk off is
11:33 pm
offensive to me, okay. it's offensive to me because i think it obfuscates what i need to be able to street you. it's some hedge fund gibberish gobbledygook. who knows what's a risky stock, who knows what's not a risky stock. i know stocks. here's what you need to know. not risk on, risk off. it's do i have cash or am i borrowing money to buy stocks? do i have cash or high growth stocks or value stocks? risk on, risk off, you will never hear it used in this show ever because all it does is confuse you and tries to make me sound smart, but it tells you actually i'm pretty darn stupid. risk on, risk off, not in cramerica. growing pains. not around here. you need to have a fast grower as part of your new diversified pattern. this is the way we're doing it. diversification, worth it to pay up for a company that's accelerating. if it's decelerating, just go.
11:34 pm
stay with cramerica.
11:35 pm
11:36 pm
11:37 pm
tonight i'm focusing on different kinds of stocks, showing you how to put together a portfolio that's portfolio that's diversified by strategy. toolbox is something you can work in any and any market no matter how tough or difficult. so far i've talked about dividend. what else is essential for a truly balanced portfolio? how about something to keep you interested and focusing and opening your statement at the end of the month. in my view you always want to own something, i know, going to signed heretical. even speculation has to be the dirtiest word in the business.
11:38 pm
except, of course, here in cramerica. worst part of investing orthodoxy. not only is it okay for you to own the tempting, risky, broken stocks in triple digits, i also regard it as a necessity as long as you follow my rules and speculate wisely. i don't fear criticism talking about this because it's made my investors a lot of money in my old hedge fund. i realize this is the exact opposite of everything you've ever been told by the usual purveyors. gray beards, telling you to focus on stocks in the big indices like the dow jones industrial average because it's filled with allegedly blue chip names, funny how being blue chipped didn't help you with gm or citigroup when they were nearly annihilated during the financial crisis. there's a place for the dow stocks, which are many eye-healeders and there's a place pore speculation and index funds. something the gray beards tell you about and i know you're going to do it so let's do it right. the so-called experts say to
11:39 pm
stick with the index fund simply because the professionals who give you this advice presume that individual home gamers like you are brain dead. and that you're incapable of analyzing the prospects of publicly traded companies on your own. that's right. that's what they think of you. they don't think they can pick your own stock. i'm not sure if they can pick your own nose. they will do less dodge to your wealth if you play around in household names and in many cases you probably never heard of it. they even tell you it's okay to own etfs, and fer not crazy enough. that's the smug conventional wisdom on wall street and among the intelligentsia, i'm a grizzled veteran, geez, i've been at the stock game for 32 years. i'm telling you it's totally bogus. the emotional element and emotional component of investing. a lot of people end you have investing poorly because they aren't engaged. they find the whole process boring, and they don't stay on top of what they own.
11:40 pm
it is sure, if you neglect your own stocks and don't have the motivation to do the homework, then i don't want you in there either and you probably won't do too well. either because buying stocks without homework, no better than gambling or you think frankly you can roll the dice and somehow get lucky and that's not the way it's played. and that's where speculation comes in. you need something speculative in your portfolio as a tonic against boredom. high risk, high reward spec stocks and an undeniable mystique to owning something that trades in the single digits. i can't fight it. they allow you to stay engaged. makes it easier to keep your head in the game. always hear that speculation is the height of irresponsibility but portfolio without speculation, without a long shot, so to speak, is a portfolio that won't capture your fancy. one that has you bored with your fancy and actually surrender to taking your fees. spendinglation doesn't just keep you interested. if you do it wisely with the right rules and discipline, i actually think you can generate enormous gains. truly massive returns that run
11:41 pm
heard of in the stocks of larger more well known and more well-liked companies that are deemed safe. some of the biggest wins in my investing career came from speculation. when done wrong swimming in under $10 water can lead to truly get-wrenching losses so i'm not saying this isn't dangerous. i know you want to speculate so let's speculate wisely. how do you avoid the winners lo? in the relatively unknown stocks of undiscovered cases, both cases you get an enormous edge. heavily researched and intenseified household names simply because the big boys won't even touch anything under five bucks. you're benefiting from classic mispricing created by overpriced money managers. the large institutions and big safe mutual funds, they don't want to own single-individual
11:42 pm
stocks, why they risk money foolishly when there were so many safer stocks out there. thee fear the down side of stocks that are broken so when one of these companies starts to turn you can buy their stocks at terrific prices since so many big boys won't go near them until they climb to higher levels. they want to sell low and buy high. that's foolishness. when ford was pushed down to $4 and change during the recession, esme, got behind it at six and within two years it was 16. more recently you caught a double and sprint, one that was left for dead at 2012 and feared that company was headed for bankruptcy, even as the business is incredibly lucrative and they were turning the corner. if you paid attention to sprint's bonds and preferred stocks were trading, the bond buyers believe it's viable and if you hadn't looked at that, you just looked at the preferred, you might have known to go in the common after spiking 20% in a single day on a much better than expected quarter. these stocks were supposed to be
11:43 pm
trash, dumpster juice. but if you went dumpster diving you caught doubles or triples. deals like these don't come around every day. with these companies we're not trying to catch a turnaround, we're looking for sectors that can seem like they capture the imagination. crowd. the next hot fad that will sweep through the wall street fashion show, sometimes, not always, the fad will be backed up by genuine earnings company which is what we saw with the little smartphone companies that made components in 2009 and 2010. these speculative fads usually have the life cycle of a may fly so the trick is to lock in your profits when you have them so you don't get burned when interest wanes and cut your losses when they become too large when the spec you bought isn't panning out. when you speculate, you're not trying to find a stock that can buy and hold. not looking for buy and hold forever, not when you speculate. want something that shoots higher. as long as you're disciplined and ring the register doesn't
11:44 pm
matter if the stock comes back down later don't take that a license of a stock with bad or deteriorating fundamentals though. here's the bottom line. own something speculative, part of the diversification that i identified. something that will stave off boredom and capture your fancy. lots of fantastic stocks start as speculation and just because the stocks trade at three doesn't mean it's a three-card m ho nty. it could be a triple waiting to happen. stick with karamer. sitting on the sidelines because of all the uncertainty in the market? >> thanks for turning my portfolio from mean to green. >> that's what i want to hear. >> with over 25 years of experience in bull and bear markets, let coach cramer show you how to play to win. >> thanks for keeping us in the game. >> "mad money," weeknights on cnbc. to experience the largest, most efficient line of luxury hybrids on the road, including the all-new esh.
11:45 pm
♪ while many automakers are just beginning to dabble with the idea of hybrid technology... ♪'s already ingrained in our dna. during the golden opportunity sales event, get great values on some of our newest models. this is the pursuit of perfection. it's got that sweet honey taste. but no way it's 80 calories, right? no way, right? lady, i just drive the truck. right, there's no way right, right? have a nice day. [ male announcer ] 80 delicious calories. fiber one. s new york state. we built the first railway and the first trade route to the west. we built the tallest skyscrapers, the greatest empires. we pushed the country forward. then, some said, we lost our edge. we couldn't match the pace of the new business world.
11:46 pm
well today, there's a new new york state. one that's working to attract businesses and create jobs. build energy highways and high-tech centers. nurture start-ups and small businesses. reduce tax burdens and provide the lowest middle class tax rate in 58 years. once again, new york state is a place where innovation meets determination and where businesses lead the world. the new new york works for business. find out how it can work for yours at you tell us what you want to pay, and we give you a range of coverages to choose from. who is she? that's flobot. she's this new robot
11:47 pm
we're trying out, mostly for, like, small stuff. wow! look at her go! she's pretty good. she's pretty good. hey, flobot, great job. oops. [ powers down ] uh-oh, flobot is broken. the "name your price" tool, only from progressive. call or click today. all night i've been preaching and teaching trying to show you how to build a portfolio, stocks that can work in virtually any and every time of market, from a nasty picnic for the marauding bears to the
11:48 pm
historic running of the bulls, something qualified for a new diversification, the sector i push endlessly, this ensures your stocks won't key off the same bad news and get beaten into bits all at the same time. the new diversification by strategy not sector means whatever the market is doing you'll have one approach to investing paying off big time. now remember what was gone over so far just in case you've missed it. need a dividend-paying stock with a high yield. need a growth stock and something speculative. what else? when i originally came up with the new idea -- with the idea of the new diversification i said you should always have some foreign exposure to portfolio, but given how the mess in europe crushed all things international and frequently hammered a a lot of other stuff, too, i think we need to refine this other stuff a bit and what you really need is a stock that's in a safe geography. at times when the united states is going more slowly than the rest of the world, then you need something international and not something that does a lot of business overseas.
11:49 pm
i'm talking about a company that's actually based in a foreign company. but at other times when the rest of the world is falling apart and the u.s. looks pretty darn good by comparison, you need a stock that gives you domestic security, something that's entirely confined within our borders because at those moments being exposed to the rest of the world is downright dangerous. what do i mean by domestic security? anything that's usa all the way. you can own a phone company like at&t or verizon. how about an electric utility like con-ed or pick a regional international chain or a dollar store like dollar general. how about a real estate investment trust, tanger factory outlets, seen those companies over and over, why, because they have been winners or own the ayrs. the point is that in terms of international turmoil this slot in your portfolio should be filled by something that's all
11:50 pm
domestic, and in times of domestic turmoil where the rest of the world was in much better shape, which is where we were after the financial crisis, then maybe you want to own a foreign company. always own a stock that's from a safe geography. sometimes that means a foreign company, sometimes you've got to stay attention to the facts, pay attention, means domestic security is all american, and believe me, i think you're going to want to go domestic for the foreseeable future. "mad money" is back after the break.
11:51 pm
sven's home securitycard gets the most rewards of any small business credit card! how does this thing work? oh, i like it! [ garth ] sven's small business earns 2% cash back on every purchase, every day! woo-hoo!!! so that's ten security gators, right? put them on my spark card! why settle for less? testing hot tar... great businesses deserve the most rewards! [ male announcer ] the spark business card from capital one. choose unlimited rewards with 2% cash back or double miles on every purchase, every day! what's in your wallet? here's your invoice.
11:52 pm
11:53 pm
all night i've about talking to you about the new diversification, a way to diversify by strategy, not sector so you can thrive this any market. we still bhaef in the old kind of diversification by group, but we've also got a new prism going here. remember, you need a high-yielder in your portfolio, a big dividend-paying stock for downside protection and the massive amount of your gains to come from the divestments and you need to profit a lot when the market is in good shape and
11:54 pm
keep delivering gains while things are worse. you need a high quality secular growth stock where earnings have momentum. and then you need a speculative trade stock, a stock left for dead by money managers or one you've never heard of. keeps you engaged, doing the homework. fourth, you need something from a safe geography, okay. either a foreign country if the united states is weak, or domestic security play if the rest of the world is stinking up the joint. and last but absolutely not least, you need some gold because gold has a special property, one that makes this metal precious to any diversified portfolio. gold tends to go up when everything else goes down. consider it your insurance against economic or geopolitical chaos. consider it insurance against uncertainty and inflation, all things that cause most stocks to decline but also cause the price of gold to rise. i like to think of the gold
11:55 pm
position as kind of a stock insurance, and would you want a home without homeowners insurance or would you buy a car without car insurance first? shouldn't invest with gold exposure because gold pays off when everything else fails and also been the best performing asset year after year for the last decade, wracking up gains over a period where consistently every other asset class have has truly disappointed you. gold is not about the upside but it can be considerable. it's about minimizing your risk to the downside. at any given moment there will be a whole host of sectors poised to outperform gold but none of them works like the insurance policy that gold does. how should you own gold in the easiest and least risky way is through an etp or symbol gld which owns the metal and does a terrific job of its price and you can have bouillon, the fiscal parts of gold.
11:56 pm
that makes sense for a lot of money and can afford to buy it in bulk and pay it towards a depository bank. i like it if you can to it. what about the gold mineers? if you pick the right company one with low production, it can outperform the commodity for a period of time, but, remember, it won't trade lockstep with the commodity and the same thing that makes gold valuable scarcity, how to get out of the ground cheaply and not a lot of new mines and gold miners can screw things up in countless ways, debt, finding costs, got whole geographies with a lot of gold that you're afraid to go to. virtually every single time i've gotten behind a gold stock in recent years i've been burned. startup delays, higher than expected cash costs and expropriation and every time something goes wrong the stock gets hammered and finally i gave up on the entire and stuck with the gld, the physical commodity. if you want exposure to geld and not only want it or need, it
11:57 pm
it's your portfolio insurance policy and everyone should have some and then you should do the easy thing and earn gold through the gld, not a gold miner loosely connected to the underlying commodity. that's too dangerous. this is gld. stay with cramer. there are a lot of warning lights
11:58 pm
and sounds vying for your attention. so we invented a warning you can feel. introducing the all-new cadillac xts. available with a patented safety alert seat. when there's danger you might not see, you're warned by a pulse in the seat. it's technology you won't find in a mercedes e-class. the all-new cadillac xts has arrived, and it's bringing the future forward. [ taste buds ] donuts, donuts, donuts!
11:59 pm
who are these guys? oh, that's just my buds. bacon, donuts. -my taste buds. -[ taste buds ] waffles. how about we try this new kind of fiber one cereal? you think you're going to slip some fiber by us? rookie. okay. ♪ nutty clusters and almonds, ♪ ♪ almonds. ♪ fiber one is gonna make you smile. ♪ [ male announcer ] introducing new fiber one nutty clusters and almonds. with 43% daily value of fiber for you. crunchy nutty clusters and real almond slices for your taste buds. in here, every powerful collaboration is backed by an equally powerful and secure cloud. that cloud is in the network, so it can deliver all the power of the network itself. bringing people together to develop the best ideas -- and providing the apps and computing power to make new ideas real. it's the cloud from at&t. with new ways to work together, business works better. ♪


info Stream Only

Uploaded by TV Archive on